After the first quarter, Wall Street compensation consulting firm Johnson Associates is projecting mixed incentive pay across financial services, with a generally more upbeat business environment and compensation outlook compared to recent years. There’s a long way to go until the end of the year, though, with political and regulatory uncertainty, rising interest rates and ongoing challenges in global markets keeping full-year pay projections cloudy. That said, in general stronger performance has led to optimism that pay will be higher this year compared to 2016.
Society For Human Resource Management (SHRM)
The reason why scandal-plagued companies are willing to pay millions in severance to allegedly bad actors is because they believe it’s the best way to put a crisis behind them and move on, explained Alan Johnson, managing director at Johnson Associates, an executive pay consultancy in New York City.
Pensions & Investments
CEO pay cuts at money management firms are following an overall trend for banks that began after the financial crisis as the highly paid top executives of the nation’s largest banks saw compensation drops, Mr. Johnson said.
“It’s someone saying: ‘I can add billions of dollars in value, and for that I want to be paid extremely well,’” said Alan Johnson, managing director of executive compensation consulting firm Johnson Associates Inc. “You don’t see this very often at all. Just like a sports figure, if CEOs believe they’re worth something there’s no reason they shouldn’t ask to get paid.”
Levin’s large pay package comes as compensation has dropped in the hedge fund industry and firms narrow in on paying for performance, says Alan Johnson, managing director of compensation consultancy Johnson Associates.
“Pay has come down meaningfully. People are differentiating better,” he says. “People who perform continue to stay where they are.”
According to Alan Johnson, managing director and founder of compensation consulting boutique Johnson Associates, some boards have moved to reduce discretion in bonus plans in order to appease investors and proxy advisors. “There’s this tension in the marketplace. A lot of it’s driven by ISS and Glass Lewis,” he says. “They hate discretion.”
Still, even if Schultz keeps showing up at the office every day, abdicating the CEO role frees him from some of the pressure of answering to shareholders’ concerns—especially after Starbucks stock fell 7.5% last year. And while Schultz probably has enough pull with the Starbucks board to keep his full pay, and then some, the company would likely be better off if he didn’t, says compensation consultant Alan Johnson of Johnson Associates.
“I think you’d want his pay to be cut in half to send a clear message that the other guy is the new guy,” Johnson says. “If taking a few million less helps the transition to the new CEO, that’s the smartest thing he could do.”
One recruiter says its mailbox has been jammed with CVs from outraged Deutsche staff who are not on what insiders call the “retention list.” Some of these come-and-get-me pleas are from people with at least ten years’ service, complaining that the bank has no regard for loyalty or performance.
“It’s a dramatic decision Deutsche made,” says Alan Johnson, a veteran pay consultant. “They knew there’d be big fallout.”
Alan Johnson, managing director of pay consulting firm Johnson Associates in New York, said the big gains for the leaders of American Express, Goldman Sachs and JPMorgan reflect how stock option compensation can magnify gains in a company’s share price.
“When the stock goes up, with options, you get more leverage,” he said.
“I wish more companies would adopt the way [Exxon] pay[s] their executives, where you don’t get it when you leave, you’ve got to earn it, [and] you get [it] delivered over time,” says Alan Johnson, president and founder of compensation consulting boutique Johnson Associates.